Thinking about a Roth IRA conversion?

E*TRADE from Morgan Stanley


Are you thinking about converting a Traditional IRA or employer plan assets to a Roth IRA? There are many benefits of a Roth IRA including:

  • Tax-free growth potential
  • The ability to withdraw contributions at any time without incurring income taxes or tax penalties
  • No required minimum distributions (RMDs) during lifetime of the Roth IRA owner (but the after-death RMD rules still apply)
  • Qualified distributions are not subject to income taxes or tax penalties to both account holders and beneficiaries

Converting to a Roth IRA may be a great financial move, but it isn't for everyone. 

Whether or not an investor should convert depends on a range of factors:

What is the expected tax bracket in retirement?

If an investor expects their tax bracket in retirement to be higher than it is today (or if they anticipate that tax rates will increase in the future), a Roth conversion may be the right choice. The benefits of tax-free withdrawals later may offset the opportunity costs of paying the taxes upfront.

How long will the assets be invested?

If an investor has 10 years or more until they plan to withdraw funds, they may want to consider converting to a Roth IRA. The longer the time frame, the more the investments have the opportunity to grow, making tax-free withdrawals in retirement all the more valuable.

Will the investor be able to pay the upfront taxes?

It's important to have enough funds outside of the IRA to cover all taxes triggered by the conversion. If the investor does not, converting to a Roth IRA might not make sense. Using funds from the IRA itself to pay taxes is not recommended, as this could reduce the growth potential inside the account and trigger income taxes and early withdrawal tax penalties.

It's also important to keep in mind that the income from the conversion may raise taxable income into a higher tax bracket. However, the good news is that investors do not have to convert the entire IRA. Investors can easily request a partial conversion.

Ironically, an IRA that has sustained significant losses can make an especially good candidate for conversion, as the lower balance will trigger a smaller upfront tax bill.

Ready to convert to a Roth IRA? Below are a few helpful links:

Converting an existing E*TRADE from Morgan Stanley Traditional IRA

Convert online now arrow_forward

Rolling over a 401(k), 457 or 403(b):

Rollover directly to an E*TRADE Roth IRA

Need help? Click here for the Roth IRA rollover checklist or see all your options for a former employer’s plan

Transferring a Traditional IRA from another financial institution:

Open both a Traditional IRA and a Roth IRA with E*TRADE. At the end of the Traditional IRA application, make the request to transfer an existing IRA to a new E*TRADE Traditional IRA. Once the assets are at E*TRADE, convert the Traditional IRA to the Roth IRA online, or call anytime for assistance.

Note: Although the IRS has lifted the modified adjusted gross income (MAGI) limit for Roth IRA conversions, the MAGI limits for Roth IRA contributions still apply.

A distribution from a Roth IRA is federal income tax free and penalty tax free provided the five-year requirement has been satisfied and one of the following conditions is met: the Roth IRA owner is age 59½ or older, suffered a qualifying disability, is deceased, or is using the withdrawal for a qualified first-time home purchase.

What to read next...

Explore IRA Rollovers including direct rollovers from an employer, rollovers from a Traditional IRA to a ROTH IRA, and trustee-to-trustee transfers.

Looking to expand your financial knowledge?